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Coalitions, agreements and efficiency

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  • Diamantoudi, Effrosyni
  • Xue, Licun

Abstract

If agents negotiate openly and form coalitions, can they reach efficient agreements? We address this issue within a class of coalition formation games with externalities where agents' preferences depend solely on the coalition structures they are associated with. We derive Ray and Vohra's (1997) notion of equilibrium binding agreements using von Neumann and Morgenstern abstract stable set and then extend it to allow for arbitrary coalitional deviations (as opposed to nested deviations assumed originally). We show that, while the new notion facilitates the attainment of efficient agreements, inefficient agreements can nevertheless arise.
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  • Diamantoudi, Effrosyni & Xue, Licun, 2007. "Coalitions, agreements and efficiency," Journal of Economic Theory, Elsevier, vol. 136(1), pages 105-125, September.
    • Handle: RePEc:eee:jetheo:v:136:y:2007:i:1:p:105-125
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    More about this item

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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